GSA’s Office of Acquisition Policy issued an Acquisition Letter Friday clarifying that, under specific conditions, upfront payment can be made for the acquisition of cloud-based commercial item software.  GSA’s guidance should result in lower prices and enhanced competition for covered software acquisitions.  There had previously been disagreement among government agencies on whether acquiring cloud-based software on a subscription basis qualified for existing subscription-based exemptions in the FAR.     The Acquisition Letter, dated March 15^th and titled “Guidance on Payment for Software Licenses Delivered via SaaS” states that covered acquisitions are not considered to be advance payments if they meet the following criteria:

• Access to the software is granted contemporaneously with payment (i.e., delivery of the license is made contemporaneously with payment);
• The license is acquired on a fixed-price or fixed-price with economic price adjustment basis even if other portions of the task order or contract are not fixed price;
• The license is priced at a single seat, multi-seat, unit, or subscription price covering a fixed term, defined as “a limited period of time”;
• The license’s pricing/billing model allows for no utilization or consumption metric other than quantity to affect the costs incurred over the negotiated term;
• The license does not require any upfront payment other than the fixed seat, unit, or subscription cost as a prerequisite for access or a pricing discount; and
• Within end user or other license agreements, the license service is continuous and

uninterrupted for the negotiated term of access to the license.

GSA’s Acquisition Letter will likely benefit small businesses that had previously had to finance software subscriptions they acquired from software publishers, making their prices higher than those who could afford to pay up front.  GSA is considering a GSAM change that would enshrine this policy in regulation.  GSA contracting officers may now elect to modify existing contracts and/or incorporate this guidance into any new agreements.  The policy is a win for common sense.